The Economics of Innocent Fraud

April 5, 2004
In this thin volume, Galbraith, the noted economist and presidential adviser, serves up a pessimistic view of today's U.S. economy. Drawing on the omnipresent headlines of corporate scandal and greed, Galbraith explains that as the economy suffers, the overall state of American society declines as well. He points to a number of cases of "innocent fraud," or the gap between reality and conventional wisdom. The author bemoans the emphasis on gross domestic production, or GDP, rather than cultural or artistic advances. Companies, not the public, decide what products to make. Galbraith believes that decisions in various corporate arenas are made based on profits, rather than sound business strategies. Furthermore, he says that shareholder meetings, with a few rare exceptions, are pointless because "Shareholders—owners—and their alleged directors in any sizeable enterprise are fully subordinate to the management.... An accepted fraud." He also calls the rapid Internet growth and subsequent bubble another example of fraud as millions of analysts predicted rapid growth for so many companies, but ultimately many employees were laid off. Even more dismaying to Galbraith is the power of the Federal Reserve, which is credited with prompting economic resurgence when, in his view, the institution has limited real power. This brief treatise is a well-written, logical argument about the state of the economy. However, readers may be disappointed because the short concluding chapter offers few realistic solutions. (Apr.)

Forecast:
Given Galbraith's reputation and the ongoing criminal trials of CEOs, this book should get review attention and early sales could be strong.

June 1, 2004
Galbraith, renowned economist, explains how economics and larger economic and political systems cultivate their own version of the truth. These "frauds" do not connect to reality, and although legal and not criminal, they reflect social and personal beliefs run amuck. He observes the notion that shareholders rule corporations when the power is now with managers. Labeling capitalism a market system makes the consumer appear to have sovereignty, yet the reality is that the market is subject to well-financed, skilled, and comprehensive management of the public response both in politics and consumerism. The economic and social dominance of big business is accepted, and the distinction between the public and private sectors has no meaning as corporate power extends to politics and government. In reality, corporations dominate our military, public finance, and the environment. As a prominent antiwar advocate, Galbraith believes war is a decisive human failure. This thought-provoking book will have wide appeal, including those whose politics and views differ from the author's.(Reprinted with permission of Booklist, copyright 2004, American Library Association.)